Q4 2024 Bitcoin Outlook: Cycle and Policy Backdrop Support Bullish Bias

Bitcoin Q3 2024 in Review

Our Q3 Bitcoin Outlook report highlighted the potential for fiscal/monetary/regulatory policy and cyclical tendencies to support the cryptocurrency, and while it’s almost exactly flat since the first day of the quarter as of writing in late September, those same dynamics remain in play as we look ahead to Q4.

As we head into the last three months of the year, the key question for traders will be whether Bitcoin can break out of its well-trodden 7-month range between $53K and $73K. After all, narrative tends to follow price in financial markets, and this dynamic is particularly true in relatively young assets like Bitcoin.

Bitcoin H2 2024 Outlook: Reasons Not to Sleep on the Lackluster Price Action

As we flip the calendars to Q4, it’s approaching “make or break” time for Bitcoin’s typical post-halving rally to begin.

For the uninitiated, the breakout Bitcoin halving is when the reward for mining new bitcoins is cut in half. This reduces the rate at which new bitcoins are created and thus, lowers the total supply of new bitcoins coming into the market. The halving tends to increase scarcity and historically has led to an increase in the price of bitcoin, though of course it's not guaranteed to do so in the future. As any Bitcoin bull will tell you, the 2024 halving took the “inflation rate” of Bitcoin’s supply to below 1% per year, less than half of gold’s annual inflation rate.

Looking at my favourite chart, which I colloquially call “The Only Bitcoin Chart You'll Ever Need™”, previous Bitcoin halvings have marked the transition from the (yellow) post-bottom recovery rally stage to the (green) full-blown bull market stage. As Bitcoin continues to mature as an asset class, we’re likely to see smaller percentage moves in each stage even if the general pattern continues to hold (i.e. a 29X rally like we saw in 2016-17 would take Bitcoin over $2,000,000 for an absurd market capitalization of $40T), but the time-based projection for a ~1.5-year bull cycle to late 2025 may still be a possibility:

Source: TradingView, StoneX. Past performance is no guarantee of future returns.

As we noted in our last report, there are both macroeconomic and “fundamental” bullish arguments for Bitcoin beyond this simple cycle analysis. From a macroeconomic perspective, the monetary policy backdrop has turned less restrictive, with global central banks cutting interest rates at a rate not seen since Q1 2020, the depths of the COVID pandemic, led by leaders like the Federal Reserve, European Central Bank, and the Bank of England; outside of a once-in-a-century pandemic, this also marks the most aggressive coordinated global reduction in interest rates since the Great Financial Crisis in 2009:

Source: US Bank

If the ongoing easing plays out as expected, it should serve as a tailwind for all risk assets, including Bitcoin.

Likewise, the amount of fiat money in the financial system is also turning to a more stimulative direction. So-called “M2” is the Fed’s estimate of the total money supply, including all the cash people have on hand, plus all the money deposited in checking accounts, savings accounts, and other short-term saving vehicles such as certificates of deposit (CDs). After contracting for nearly 18 months, the year-over-year growth in US money supply has flipped positive again, bolstering Bitcoin’s “hard money”/hedge against US dollar debasement narrative:

Source: Federal Reserve, Econovis

Speaking of the world’s largest economy, the US election will be a major theme for all markets heading into November’s tightly-contested Presidential election.

Former President Donald Trump has emerged as an advocate for the entire crypto industry and Bitcoin in particular, stating that he wants all remaining Bitcoin to be “made in the USA” and that he would remove crypto advocates’ arch-nemesis SEC Chairman Gary Gensler “on day one.” In contrast, early indications are that Vice President Kamala Harris appears to favour the more cautious approach of the Biden Administration, potentially retaining Gensler as the head of the SEC and generally remaining skeptical of the industry on “consumer protection” grounds.

In what is shaping up to be a(nother) closely-fought election, the small-but-growing block of wealthy, “single issue” crypto voters has come into focus, and a Trump victory in November would likely be seen as supportive for Bitcoin and other cryptoassets.

Meanwhile, the initially impressive flow of “TradFi” institutional capital into spot Bitcoin ETFs has petered out in recent months. After arguably some of the most successful ETF launches of all time, total inflows into Bitcoin ETFs have flatlined through August and September, mirroring the sideways price action in Bitcoin itself:

Source: Farside Investors

Whether these stalling flows represent saturation or a mere pause as these heavily-regulated, slow-moving allocators get their legal ducks in a row will be a big factor in determining how Bitcoin performs in Q4.

Why Bitcoin Likely Has Not Reached a Cycle Top Yet

Over a longer-term horizon though, there are plenty of indicators that suggest we may still be a decent distance, in both time and price, from a cycle top in Bitcoin.

The MVRV (Market Value to Realized Value) Z-score, which compares the current price to the aggregate cost paid for all outstanding Bitcoin, has moved up from the < 1 level that has historically marked bear market bottoms in early 2023 to roughly 2 today. However, as the chart above shows, previous cycle tops haven’t formed until this indicator reaches levels above 7, suggesting that we may be far from a long-term top (though given Bitcoin’s limited historic record, it’s important to remember that the current cycle may not match previous patterns):

Source: Bitcoin News. Past performance is not indicative of future returns.

A final consideration is the behavior of long-term holders. As we’ve noted in previous outlooks, those who have held their Bitcoin for more than a year, almost tautologically, are not trying to make a “quick buck” off the cryptocurrency; rather they are more likely to be “true believers” or “HODLers” who are unlikely to sell unless they’re sitting on a truly massive gain.

As the chart below shows, the proportion of Bitcoin that has been held for at least a year started 2024 at record highs above 70% before seeing a notable decline to below 66% as of writing in late September. While a 4% drop may seem relatively small, it represents nearly 800K in marginal Bitcoin supply. This measure, by definition moves relatively slowly, but Bitcoin bulls will want to see it start ticking higher in the coming months to confirm any strength in the underlying price:

Source: MacroMicro.me

Of course, the catalysts we highlight in this report may not play out as expected – and to some extent, they may already be priced in so readers should always exercise caution when trading Bitcoin and other cryptoassets. As ever, it will be critical to monitor a broad swath of macroeconomic and crypto-specific metrics as the year develops.

Bitcoin Technical Analysis – BTC/USD Weekly Chart

Source: TradingView, StoneX.

Looking at the longer-term chart, Bitcoin continues to consolidate within its established sideways range between $53K and $73K.

From a bull’s perspective, this could be seen as a “high base” pattern, showing that despite a prolonged up move, Bitcoin has refused to pull back appreciably as buyers step in to limit any short-term dips. A bullish breakout from this high base pattern, if seen, could result in a powerful continuation move higher toward $100K+.

The alternative view is that despite the bullish fundamental and policy catalysts cited above, Bitcoin has failed to gain any appreciable ground for more than half a year now, and if a market can’t rally on “good” news, it may be about to form a major top. In that scenario, a break below $53K support would open the door for a deeper retracement back toward the Fibonacci retracements of the 2022-2024 rally near $45K (50%) or $38K (61.8%).

-- Written by Matt Weller, Global Head of Research

Follow Matt on X: @MWellerFX